CODE OF CORPORATE

GOVERNANCE
By
Asim Gul
Danya Riaz Qureshi
Hafsa Sattar
Kinza Mughal
What is corporate governance?
Corporate governance is the set of processes,
customs, policies, laws, and institutions affecting the
way a corporation is directed, administered or
controlled.
Corporate governance also includes the relationships
among the many stakeholders involved and the goals
for which the corporation is governed.
The principal stakeholders are the shareholders, the
board of directors, employees, customers, creditors,
suppliers, and the community at large.
Fundamental Objective of Corporate
Governance

Enhancement of Shareholder Value, keeping in

view the Interests of other Stakeholders.

Provides a framework for efficient and transparent

running of listed companies to enhance
shareholder value.

The regulators need to be vigilant to enforce the

code in its true spirit
Constituents of Corporate Governance
The Board of Directors
 Pivotal role
 Accountable to stakeholders
 Directs management

The Shareholders & Stakeholders

 To participate in appointment of directors
 To hold the BoD accountable for governance through proper
disclosures
The Management
 To act on the direction of the BoD
 To provide requisite information to the BoD for decision
making
 To implement and monitor control systems
 Main Provisions

• Board Matters

• Remuneration Matters

• Accountability And Audit

• Communication With Shareholders

Corporate Governance
R = Responsibility
A = Accountability
F = Fairness
T = Transparency

RAFT contributes to
effectiveness!
Mapping Responsibility: Responsibility is taken by
those who make decisions.
Accountability: All who have enjoyed power
through a strong set of rules are answerable to
sponsors as well as society.
Transparency: Through checks and balances like;
Auditing Committee, External and Internal audit
systems, which are free of interference by decision
makers.
Awareness of Corporate Governance

Code of Governance issued in 2002. Mandatory for

all listed companies

SBP requires all non-listed commercial banks and

development financial institutions to comply with
the code
OECD Principles of Corporate
Governance, (1999)
Protect rights of SHAREHOLDERS

Recognize the rights of STAKEHOLDERS

Timely and accurate DISCLOSURE

Responsibility of the BOARD

Best Practices
In multinationals corporate governance
benchmark, internal reporting and disclosure
requirements are set out by the parent company

This translates to practices that go beyond the

regulatory requirement

Such companies though few are becoming the

effective drivers for corporate governance
BOARD OF DIRECTORS
Encourage effective representation of independent
non-executive directors, including those
representing minority interests.

a. minority shareholders as a class are facilitated to

contest. (through the use of proxy)
BOARD OF DIRECTORS

At least one independent director representing

institutional equity interest of financial institution. (a
director nominated as a director under section 182 and
183 not be taken as independent directors)

c.  Executive directors not more than75% of the

elected directors. (Voluntary provision)

The directors to give consent that they are aware of

their duties and powers
BOARD OF DIRECTORS
 Encourage effective representation of independent non-executive
directors, including those representing minority interests.

 a. minority shareholders as a class are facilitated to contest.

(through the use of proxy)

 b. At least one independent director representing institutional

equity interest of financial institution. (a director nominated as a
director under section 182 and 183 not be taken as independent
directors)

 c.  Executive directors not more than75% of the elected directors.

(Voluntary provision)

 The directors to give consent that they are aware of their duties and
powers
QUALIFICATION AND ELIGIBILITY TO ACT
AS A DIRECTOR
  Director, not to be a director in more than ten other listed companies.

 ii. Director needs:
a. to be registered as a National Tax Payer ; and

b. Not to a defaulter as convicted by court of a banking

company, development financial institution, or a non-banking
financial institution or as a member by the Stock Exchange.

 iii Not to be director if spouse is engaged in the business of

Stock Brokerage (voluntary)

  TENURE OF OFFICE OF DIRECTOR

  iv. Three years, vacancy to be filled in 30 days
Pakistan Institute of Corporate Governance

PICG was set up as a non-

for-profit company in
Dec 2004, limited by
guarantee and without
share capital, for
furtherance of Corporate
Governance in Pakistan
Pakistan Institute of Corporate Governance
The institute has been setup in public-private partnership;
shareholders include, in addition to the Securities and
Exchange Commission of Pakistan, the State Bank of
Pakistan, the three Stock exchanges, the Banking Insurance
and NBFS Associations, professional bodies of accountants
& company secretaries, academia, and the Corporate Sector

PICG is involved in training and education, creating

awareness, undertaking research, publishing guidelines
and other resource material, and acts a forum for discussion
on corporate governance
QUALIFICATION OF CFO AND CS
 CFO has to be:
a. professional accountant ; or
b.   graduate with 5 yrs experience in handling financial affairs
in a listed company or a bank.

 CS has to be:

a. professional accountant ; or
b.   member of a recognized body of corporate/chartered
secretaries or
c.  lawyer ; or
d.  a graduate with 5 yrs experience of handling corporate
affairs.
FINANCIAL REPORTING
CORPORATE AND FINANCIAL REPORTING
FRAMEWORK
Directors report to shareholders. Give complete and candid
position of the company.

RESPONSIBILITY FOR FINANCIAL REPORTING

i. Financial statements to be duly endorsed by CEO and CFO
ii. Secretarial compliance certificate required with annual
returns

DISCLOSURE OF INTEREST BY A DIRECTOR.

AUDITORS

AUDITORS NOT TO HOLD SHARES

 External Auditors and their spouse restricted to purchase shares in

the company they are auditing.
 
AUDIT COMMITTEE

i. not less than three member committee preferably from non-

executive directors. 

ii. Committee to meet at least once every quarter.

iii. CFO to attend meetings of Audit committee.

 Major Initiatives
SECP issued the Code of Corporate Governance for listed
Mar 2002
companies

Seminar by SECP on “Corporate Governance beyond Listed

May 2004
Companies”- Islamabad

ACCA Pakistan held a centenary conference on “Good

May 2004
Corporate Governance for investment”- Lahore

Annual Conference on “Regulation, Supervision and

May 2004
Performance of Corporate Governance”- Lahore

A research and educational initiative in collaboration with

Citigroup foundation, New York on “Foundations of Jun 2004
Corporate Governance in Pakistan” by LUMS
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 Major Initiatives (Contd.)
Pakistan Institute of Corporate Governance incorporated for the
Dec 2004
furtherance of Corporate Governance in Pakistan

Second Annual Conference sponsored by SECP & LUMS on

Jun 2005
“Corporate Governance in Pakistan”

PICG formally launched in Islamabad Aug 2005

PICG in collaboration with SECP organised an interactive session

with the boards of three listed companies “Building an effective Nov 2005
Board”

SECP and IFC organised a roundtable event to present the

“Report on Observances of Standards & Codes (ROSC)” with Mar 2006
respect to Corporate Governance in Pakistan

PICG and ACCA Pakistan arranged a two day Corporate

Mar 2006
Governance orientation for company Directors- Karachi
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 Major Initiatives (Contd.)

A survey of 40 well known listed companies conducted by

Apr 2006
Mr. Zafar Khan (Chairman, KSE & Director, PICG)
PICG along with IFC partnered with the SBP conducted the
first ever local conference on “Corporate Governance in May 2006
Banks”- Karachi

PICG along with IFC and the Investment Banks Association

May 2006
of Pakistan (IBAP) partnered a half day conference- Lahore

PICG along with IFC and the Leasing Association of Pakistan

(LAP) partnered a half day seminar on the “Role of Board of Jun 2006
Directors”- Karachi

PICG again along with IFC and the Modarba Association of

Pakistan (MAP) partnered a half day seminar on the “Role of Jun 2006
Board of Directors”- Karachi
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